Manual Transmittal

Purpose

Background

This IRM is for use by examiners in the Small Business and Self-Employed (SB/SE), Large Business and International (LB&I),
and Wage and Investment (W&I) divisions and provides information on general examination procedures.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Also, website addresses, legal references, and IRM references
were reviewed and updated as necessary. Several sections were moved and renumbered during this revision. Significant changes
to this IRM are listed in the table below.

Prior Reference

New Reference

Description of Change

4.2.1.1

N/A

Deleted paragraphs (3) and (4) because they duplicate information available in another IRM and are not necessary.

N/A

IRM 4.2.1.2

Added a new section regarding the Potentially Dangerous Taxpayer (PDT) and Caution Upon Contact (CAU) Programs.

Moved, renumbered, and added references to new letters. Added text for examination report.

IRM 4.2.1.6

IRM 4.2.1.5

Moved, renumbered, and renamed as General Appeals Guidelines. Updated to include current guidance related to cases not fully developed, new or reopened issues, and disagreements with
determinations made by Appeals.

IRM 4.2.1.7

IRM 4.2.1.8

Moved, renumbered, and updated guidance to include additional information and procedures regarding requests for reimbursement
of litigation and/or administrative costs.

IRM 4.2.1.7 (4)

IRM 4.2.1.20

Moved this content to a new subsection.

IRM 4.2.1.8

IRM 4.2.1.11

Moved, renumbered, and updated to include correct titles of management officials. Also updated to clarify field processing
procedures.

IRM 4.2.1.9

IRM 4.2.1.15

Moved, renumbered, and updated guidance.

IRM 4.2.1.10

IRM 4.2.1.12

Moved, renumbered, and added definition of a blind trust.

IRM 4.2.1.11

IRM 4.2.1.16

Moved, renumbered, and renamed section as Return Preparer Misconduct. Updated guidance to include procedures for referral to the Return Preparer Office.

IRM 4.2.1.12

IRM 4.2.1.17

Moved, renumbered, and updated guidance.

IRM 4.2.1.13

IRM 4.2.1.18

Moved and renumbered.

IRM 4.2.1.14

IRM 4.2.1.19

Moved and renumbered.

IRM 4.2.1.15

IRM 4.2.1.4

Moved and renumbered.

IRM 4.2.1.16

IRM 4.2.1.13

Moved and renumbered.

IRM 4.2.1.16.2

IRM 4.2.1.14

Moved and renumbered. Also, added reference to fax number and mailing address for the Treasury Inspector General for Tax Administration
(TIGTA) hotline.

Effective Date

4.2.1.1
(04-23-2014)Identification and Control Numbers

The similarity of taxpayers' names and the voluminous flow of documents require the use of permanent identifying numbers coupled
with taxpayers' names. These numbers are necessary for automated data processing (ADP) purposes to ensure positive control
of each tax account and all related transactions. Some standard titles and abbreviations used are as follows:

Social security number (SSN)—the number assigned to an individual for social security purposes, tax account purposes, or both.

Employer identification number (EIN)—the number assigned for any tax purpose to a person other than an individual. Also means the identification number which
is assigned to an individual who is required to file a return with respect to his or her liability for any tax other than
income, estate, or gift taxes.

Document locator number (DLN)—the number assigned to each return or other document introduced into processing for control and file reference purposes.

Individual taxpayer identification number (ITIN)—the number assigned to individuals who are required for U.S. tax purposes to have a U.S. taxpayer identification number but
who do not have, and are not eligible to obtain a SSN issued by the Social Security Administration.

Internal revenue service number (IRSN)—the number used in place of a required TIN during processing.

The spacing of the digits in identifying numbers is an integral part of the number. The proper spacing must be observed in
all instances. The spaces may be indicated by using hyphens, blank spaces, etc. For example, EIN as 00-0000000; and, SSN as
000-00-0000.

The foregoing identification and control numbers do not preclude the use of reference or control numbers such as Tax Court
docket numbers, Criminal Investigation (CI) case numbers, reference numbers used in connection with the collection of delinquent
accounts, or other numbers or codes used for control or reference purposes.

The IRS has two servicewide employee safety programs designed to warn employees of taxpayers who have been designated as potentially
dangerous and or should be approached with caution:

Potentially Dangerous Taxpayer (PDT) Program

Caution Upon Contact (CAU) Taxpayer Program

The Office of Employee Protection (OEP) has sole responsibility for administering the PDT and CAU programs. The OEP enhances
the safety of IRS employees by taking the following actions:

Making PDT and CAU determinations.

Maintaining the PDT and CAU indicator databases.

Providing information and feedback to employees, managers, and executives.

OEP maintains two IRMs that provide guidance and information:

IRM 25.4.1, Potentially Dangerous Taxpayer, provides procedures and guidelines for referring and designating taxpayers under the PDT program. See IRM Exhibit 25.4.1-1,
List of "PDT"
Coded Systems and Documents, for a listing of documents and systems that display the PDT indicator.

IRM 25.4.2, Caution Upon Contact Taxpayer, provides procedures and guidelines for referring and designating taxpayers under the CAU program. See IRM Exhibit 25.4.2-1,
List of "CAU"
Coded Systems and Documents, for a listing of documents and systems that display the CAU indicator.

The OEP performs PDT and CAU five-year reviews, which consist of reviewing the taxpayer against established five-year renewal
criteria. See IRM 25.4.1.8, Five-Year Review of PDT Records and IRM 25.4.2.7, Five-Year Review of CAU Records for additional information.

The OEP Office of Employee Protection website provides additional guidance and information such as the following:

Definition of assaults, threats, and intimidation

Process of reporting assaults, threats, and intimidation

Criteria for PDT

Criteria for CAU

Explanation of relationship between the TIGTA and the OEP

"A Guide to the Office of Employee Protection Programs"
desk guide

Spotlight on Safety brochure

Spotlight on Safety newsletter

Frequently asked questions

4.2.1.3
(04-23-2014)Request for Armed Escort

The TIGTA Office of Investigations (OI) has primary responsibility to provide armed escorts for IRS personnel who in the course
of their official duties have been threatened with bodily harm indicating the need for such protection. See IRM 9.5.11.10,
Armed Escort Assignment.

Exception:

CI has primary responsibility for the protection of the Commissioner of Internal Revenue.

When an examiner feels he or she needs an armed escort, he or she will immediately report the facts causing the need to his
or her group manager. Armed escorts may be requested by IRS employees when they intend to meet with taxpayers who have been
designated by the OEP as PDT or CAU, or in other circumstances where the examiner and his or her manager believe any interaction
during the performance of his or her duties may pose a risk of injury to the employee.

If the group manager determines that an armed escort is necessary, he or she will request such protection in writing via a
memorandum, not to exceed two pages, to the TIGTA-OI special agent in charge (SAC) of the appropriate TIGTA-OI field division.
To ensure the safety of IRS and TIGTA-OI personnel, as well as guarantee the operational integrity of the armed escort, a
request must be submitted at a minimum one week prior to the scheduled appointment date. If a request is submitted with less
than a one week notification, it may require a postponement of the appointment or an alternate meeting location.

All armed escort requests will be reviewed by the respective TIGTA-OI SAC. Armed escorts will be provided on a case-by-case
basis. If the TIGTA-OI SAC determines that an armed escort is not warranted, IRS management may seek a reconsideration of
the denied request by contacting the TIGTA-OI SAC who rendered the decision. If a resolution cannot be reached and the requesting
IRS management official still believes an armed escort is warranted, the IRS management official can request a final reconsideration
from the TIGTA-OI, Deputy Assistant Inspector General for Investigations (DAIGI)-Field Operations.

Since TIGTA-OI has primary responsibility for providing armed escorts, IRS management may not request and or alternatively
seek assistance from CI if his or her request for an armed escort has been denied. If CI receives a request for an armed escort
from an IRS employee or management official, CI will refer the IRS employee or management official to the nearest TIGTA-OI
office.

Note:

Unless specifically asked for assistance by TIGTA-OI, CI will no longer be responsible for providing armed escorts to IRS
employees except as noted in paragraph (1) above. If CI assistance is needed, the TIGTA SAC will forward the request in writing
to the appropriate CI Director, Field Operations, for concurrence.

If an armed escort is being considered for a taxpayer designated a PDT, contact TIGTA-OI directly. The memorandum should contain
the following information:

Taxpayer name.

Taxpayer social security number.

Taxpayer contact number(s).

Taxpayer home address.

Assigned IRS employee name, position, and contact information.

Supervisor name, position, and contact information.

Description of the tax issue.

Description of activity to take place.

Phone number of IRS employees or others who will attend.

Location of activity.

Any contacts or statements related to the taxpayer that caused concern.

Any other information related to the subject that would indicate an armed escort is warranted.

If an armed escort is being considered for a taxpayer designated as CAU, the requesting employee or management official must
contact the OEP and obtain the basis for the OEP's designation. IRS management must evaluate this information and if it is
decided an armed escort is still needed, proceed with the memorandum. The memorandum should contain the following information:

Taxpayer name.

Taxpayer social security number.

Taxpayer contact number(s).

Taxpayer home address.

Assigned IRS employee name, position, and contact information.

Supervisor name, position, and contact information.

Basis for the OEP CAU designation.

Description of the tax issue.

Description of activity to take place.

Number of IRS employees or others who will attend.

Location of activity.

Any contacts or statements related to the taxpayer that caused concern.

Any other information related to the subject that would indicate an armed escort is warranted.

If an employee is requesting an armed escort for reasons other than PDT and CAU, IRS management must evaluate the situation.
If IRS management concurs with requesting an armed escort, prepare a memorandum. The memorandum should contain the following
information:

Taxpayer name.

Taxpayer social security number.

Taxpayer contact number(s).

Taxpayer home address.

Position, grade, function, and POD information, if the taxpayer is an IRS employee or contractor.

Assigned IRS employee name, position, and contact information.

Supervisor name, position, and contact information.

Background information concerning the taxpayer.

Description of activity to take place.

Number of IRS employees, management officials, and or others who will attend.

Location of activity.

Any contacts or statements related to the taxpayer that caused concern.

Any other information related to the subject that would indicate an armed escort is warranted.

When an actual threat or assault has been made, TIGTA has primary jurisdiction and must be contacted. For contact information,
refer to the TIGTA-OI website.

4.2.1.4
(04-23-2014)1254 Suspense

Examination Technical Services holds cases pending a court decision or business unit guidance. Cases may be held in 1254 suspense
under the following circumstances:

The facts in the case to be suspended are the same or similar to an issue pending in a federal court.

The issue is similar to one that is under consideration in District Court in another jurisdiction, but only if a Form 906,
Closing Agreement on Final Determination Covering Specific Matters, has been secured, usually by Appeals.

Chief Counsel or another business unit has identified the issue as a suspense issue.

For cases held in 1254 suspense pending a court decision, the facts in the case to be suspended must be so similar to those
in the pending case that a decision in one will ultimately decide the other.

The examiner must discuss any case being considered for 1254 suspense with his or her group manager. The group manager must
contact his or her area Examination Technical Services function to determine whether the case meets the criteria for 1254
suspense.

Prior to forwarding a case to Examination Technical Services for 1254 suspense, the examiner must:

Develop the case to the fullest extent possible.

Ensure a partial agreement is assessed if a case has other issue(s) that do not meet 1254 suspense criteria. See instructions
for preparing partially agreed reports in IRM 4.10.8.5, Partially Agreed Cases. The only issues that may be placed in 1254 suspense are unagreed issues meeting the 1254 suspense criteria.

Note:

If a partial agreement cannot be secured, the case should not be sent to 1254 suspense. Prepare an unagreed report for all issues pursuant to the instructions in IRM 4.10.8.11, Unagreed Case Procedures: Preliminary (30-Day) Letters. If the taxpayer fails to file a protest, close the case for issuance of a statutory notice of deficiency.

Ensure an examination report addressing the unagreed issue(s) being suspended is shared with the taxpayer and a copy is retained
in the case file, for purposes of IRC 6404(g).

Ensure a claim disallowance that addresses the unagreed issue(s) being suspended is in the case file, if applicable. A claim
allowance must also be included in the case file should the taxpayer’s position prevail.

Ensure there are at least 24 months remaining on the statute of limitations. If not, secure an extension prior to sending
the case to Examination Technical Services for 1254 suspense.

Complete Form 1254, Examination Suspense Report, and ensure the key case is identified.

See IRM 4.8.2.10, Suspense Cases, for additional guidance.

4.2.1.5
(04-23-2014)General Appeals Guidelines

This section provides general information related to how Appeals works an examination case and the formal procedures for Examination
staff to voice concerns about a case settled by Appeals.

4.2.1.5.1
(04-23-2014)Cases Not Fully Developed

Appeals will not return cases to Examination when the case is not fully developed and the taxpayer has not presented new information
or evidence. Instead, Appeals will attempt to settle the case on factual hazards.

4.2.1.5.2
(04-23-2014)New or Reopened Issues

The appeal process is not a continuation or an extension of the examination process. Appeals will not raise new issues and
will focus dispute resolution efforts on resolving the points of disagreement identified by the parties.

A new issue is a matter not raised during an examination.

In resolving disputes, Appeals may consider new theories and or alternative legal arguments that support the parties' positions
when evaluating the hazards of litigation in a case. However, the appeals officer will not develop evidence that is not in
the case file to support the new theory or argument.

The discussion of new or additional cases or other authorities (e.g., revenue rulings or revenue procedures) that supports
a theory or argument previously presented does not constitute consideration of a new issue.

A change in computation is not a new issue.

Appeals will not reopen an issue on which the taxpayer and the IRS are in agreement.

Exception:

See IRC 7121.

The restrictions on raising a new issue do not apply to new issues raised by taxpayers. For this purpose, the term "new issue"
means issues identified by Appeals in non-docketed cases.

Appeals will not raise a new issue in a docketed case. A new issue in a docketed case is any adjustment to or change to an
item that affects the petitioner's tax liability that was not included in the notice of deficiency and is raised or discussed
during consideration of the case. However, Appeals will consider any new issue the government raises in its pleadings and
may consider any new evidence developed by Examination or Counsel to support the government's position.

4.2.1.5.3
(04-23-2014)Disagreements With Appeals Determinations

This section provides formal procedures for Examination to voice concerns about an appeals settled case. These procedures
are not intended to replace any informal procedures currently in use at the area level. Management in Examination and Appeals
can continue to address and resolve disagreements over case resolution at the lowest possible level. These formal procedures
are used when the informal process results in Examination still having unresolved significant concerns about the disposition
by Appeals of an issue.

Formal disagreement is expressed by written dissent. The written dissent must clearly state the reason(s) for dissent, the
rationale supporting the reason(s) for the dissent, and whether Examination requests a conference with the appropriate Appeals
executive (Director, Field Operations, Director, Campus Operations or Director, Specialty Operations). The rationale for the
dissent should include the following:

Citation of the specific facts that were not considered, or given enough weight, if Examination believes Appeals did not properly
consider the facts.

Citation of the applicable law (e.g.,. IRCs, Treas. Regs., Rev. Ruls., court cases, etc.) that was not considered and or accorded
different weight if Examination believes there was unsound application of the law by Appeals.

Note:

Formal dissents by Examination are not appropriate in an appeals case where "hazards of litigation"
were considered in the settlement of the case. Appeals clearly identifies within the appeals case memorandum (ACM) those
cases resolved by considering the "hazards of litigation."

Note:

The decision to hold a conference is at the discretion of the appropriate Appeals executive. If a conference is held, the
parties must follow the ex parte communication guidelines set forth in Rev. Proc. 2012-18, Section 2.03(11).

Dissents should be forwarded to the appropriate Appeals Field Operations, Campus Operations, or Specialty Operations Director
via the *AP Formal Dissents centralized mailbox within 90 days (extensions may be mutually agreed upon) of receipt of an ACM
by Examination. The appropriate Director will retrieve the formal dissent from the centralized mailbox and send Examination
an acknowledgment of receipt.

Upon receipt of the dissent, the Appeals Director will determine whether a reply to the dissent is appropriate, and guided
by IRM 1.2.17.1.3, Policy Statement 8-3 (Formerly P-8-50), and existing regulations and statutes, whether the case should be reopened.

The above procedures do not preclude the exchange of non-case specific information that occurs through advisory boards or
between analysts in Examination and Appeals.

4.2.1.6
(04-23-2014)New Issues Raised by Counsel

In general, Counsel will not raise new issues, unless the grounds are substantial and the potential effect on tax liability
is material. See Chief Counsel Directives Manual (CCDM) 35.4.1.2, Raising New Issues in Tax Court Cases.

4.2.1.7
(04-23-2014)Litigation Affecting the IRS

The legal work of the IRS is performed by the Office of Chief Counsel. Referrals to the Associate Area Counsel office should
be considered in unrelated tax issue matters.

4.2.1.7.1
(04-23-2014)Notification to Area Counsel in State Court Suits

The IRS ordinarily will not intervene in litigation in state courts between private litigants even though the purpose of the
parties is to obtain a decree or judgment affecting the federal tax liability of one or the other of the parties to the litigation.
In those cases arising in state courts between private litigants, to which officials of the IRS have not been made a party
but which may have a direct bearing upon the construction of an internal revenue code, or upon the government's title or right
to possession to property which has been seized, the IRS may intervene or take other appropriate steps in connection with
the proceeding. See IRM 1.2.13.1.8, Policy Statement 4–10 and CCDM 34.6.2.6, Intervention.

When pending proceedings come to the attention of examiners, a memorandum report of the proceeding should be made to the Associate
Area Counsel office. Area Counsel will determine whether the IRS should intervene or take any steps in connection with the
proceeding.

4.2.1.7.2
(04-23-2014)Suits for Recovery of Erroneous Refunds

Examiners may determine a taxpayer erroneously received a payment of money in the form of a tax refund. IRC 7405 provides
that any portion of tax which has been erroneously refunded may be recovered by civil action. IRC 6532(b) provides that a
general suit under IRC 7405 may be brought within two years. Begin computing the two-year period from the day after issuance
of the refund check or the date the direct deposit cleared. Examiners should contact Chief Counsel, Procedure and Administration,
if there is a potential statute problem. If any part of the refund was induced by fraud or misrepresentation of a material
fact, suit may be brought at any time within five years from the day after issuance of the refund check or the date the direct
deposit cleared. See IRM 5.1.8.7.1.1.2, Unassessable Erroneous Refunds, and IRM 21.4.5.14, Collection Methods for Category D Erroneous Refunds, for additional information.

Assessable erroneous refunds may also be recovered by administrative action within the applicable period of limitation upon
assessment and collection. The type of tax involved is determinative of the type of administrative action available. Ordinarily,
recovery by suit is utilized because administrative recovery is barred by the statute of limitations on assessment. Any contemplated
collection activity based on administrative recovery should be coordinated with Counsel.

The erroneous refund suit is limited to erroneously refunded amounts that exceed the litigating threshold established by the
Department of Justice (DOJ).

A recommendation for an erroneous refund suit to the Associate Area Counsel should be accompanied by the administrative file,
a copy of any request made to the taxpayer for voluntary payment, a copy of the taxpayer's refusal to make voluntary payment,
transcript of account, and a narrative report containing the following information:

The type of tax involved and the amount of money expected to be recovered.

The date the period of limitations on collection will expire.

A brief statement that administrative remedies are impractical or have been exhausted, including the reasons that administrative
actions have not been effective.

Facts, evidence, and other matters necessary for development of the case.

Brief personal history of the taxpayer or other facts that might have a bearing on the suit.

Location of the principal executive office, date of incorporation, state of incorporation, and the name and address of the
statutory agent for service if the taxpayer is a corporation.

A statement of the exact legal premise for recovery of the erroneous refund.

After the narrative report and other related documents are prepared, the examiner will submit the entire case file to his
or her group manager for review. If the manager agrees, the case will be referred to Area Counsel using locally established
procedures. For example, the manager may request Technical Services (TS) conduct a further technical review and prepare the
advisory request, or an area may have an agreement with its Area Counsel and TS to send requests for technical assistance
directly to Area Counsel (TS should receive a copy of the request if bypassed).

In suits initiated by or against the IRS, the Disclosure Office or Field Collection-Advisory receives and processes requests
from U.S. Attorneys or Chief Counsel for data or documents. Basic data in refund suits, other than suits involving Trust Fund
Recovery Penalty assessments, is requested directly from the campus. For additional information, see IRM 25.3.6.1, Types of Litigation Controlled by Advisory.

A DOJ attorney may request assistance prior to or during a trial resulting in Counsel requesting a supplemental investigation
by an examiner. See CCDM 34.7.1.2.2, When Supplemental Investigation Is Warranted. The request may be formal or informal. If formal, Counsel will request a supplemental investigation by preparing a memorandum
to the Area Director (or comparable level of management) for the area in which the case arose. See CCDM 34.7.1.2.3, Procedure for Supplemental Investigation.

4.2.1.8
(04-23-2014)Awards of Litigation and Administrative Costs in Tax Cases

IRC 7430 provides for the award of costs, attorneys' fees and other expenses to "prevailing parties"
in any civil tax action in the U.S. Tax Court, U. S. District Court, or the Court of Federal Claims if the taxpayer has
met the requirements of IRC 7430(b) and the IRS does not establish that its position was "substantially justified"
. The position of the IRS will be "substantially justified"
if it had a reasonable basis both in law and in fact. A party who meets the requirements of IRC 7430(b) may also qualify
as a "prevailing party"
if the liability of the taxpayer as determined by a judgment in the proceeding is equal to or less than the liability
of the taxpayer which would have been determined if the United States had accepted a qualified offer of the party under IRC
7430(g) and none of the exceptions of IRC 7430(c)(4)(E)(ii) apply. If the qualified offer rule applies, a showing of substantial
justification by the United States does not preclude the taxpayer from receiving an award under IRC 7430. This paragraph is
not applicable to litigation in state courts.

The law also applies to taxpayer suits for refunds as well as a wide variety of litigation such as suits to reduce a tax claim
to judgment, to enforce a levy, to foreclose a tax lien, to recover an erroneous refund, to establish transferee liability,
or to enforce a summons.

The law provides that an award may be made only if the taxpayer has exhausted all available administrative remedies within
the IRS, did not unreasonably protract the proceeding, has substantially prevailed with respect to the amount in controversy
or has substantially prevailed with respect to the most significant issue or set of issues presented, and satisfies the net
worth requirements. Even if the taxpayer satisfies all of the above requirements, the taxpayer will not be treated as the
prevailing party if the United States establishes that the position of the United States in the proceeding was substantially
justified, unless the qualified offer rule of IRC 7430(c)(4)(E) applies.

IRC 7430 also allows a taxpayer who prevails before the IRS in an administrative proceeding to request reimbursement of reasonable
administrative costs incurred in defending the taxpayer's position.

Taxpayers must file their requests with the IRS personnel who have jurisdiction over the tax matter underlying the claim for
costs. If the taxpayer does not know who has jurisdiction over the tax matter, the taxpayer may send the request to the IRS
office that considered the underlying matter. See Treas. Reg. 301.7430-2(c)(2).

Administrative cost awards under IRC 7430 are considered by Appeals in non-docketed cases. Therefore, requests for IRC 7430
administrative cost awards in non-docketed cases should be routed to the Appeals office personnel who settled the taxpayer’s
matter.

Administrative cost awards under IRC 7430 are considered by Counsel in docketed cases. Therefore, requests for IRC 7430 administrative
cost awards in docketed cases should be routed to Counsel.

Regardless of whether the case is docketed or non-docketed, all requests for IRC 7430 administrative cost awards with respect
to an administrative proceeding related to requests for damages for Bankruptcy Code violations should be routed pursuant to
the instructions in Treas. Reg. 301.7430-2.

There is no IRS form for requesting an IRC 7430 administrative cost award. Taxpayers and their representatives may file a
request for an IRC 7430 administrative cost award by mailing a letter or Form 843, Claim for Refund and Request for Abatement, to the IRS. If the examiner is unsure if a Form 843 is requesting an IRC 7430 administrative cost award, he or she should
consult with his or her lead or manager.

Note:

Taxpayers must file a motion with the Tax Court consistent with Tax Court Rule 231 for reimbursement of litigation costs.

4.2.1.9
(04-23-2014)Statute Expiration Reports

A statute expiration report is required when the period for assessment or the assessment period that was extended by consent
has expired. See IRM 25.6.1.13, Barred Assessments/Barred Statute Cases, for guidance and a list of exceptions to the reporting requirement.

SB/SE area office employees should refer to IRM 25.6.1.13.2.8, Statute Expiration Reporting Responsibilities and Procedures for SB/SE Area Office Involved Directly With or Providing Support
for Tax Return Examinations, for guidance.

LB&I field operations and campus employees should refer to IRM 25.6.1.13.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees, for guidance.

4.2.1.10
(04-23-2014)Taxpayer Notification of Assessment Statute Expiration and Acceptance of Voluntary Payments on Expired Statute Returns When
Taxpayer Was Contacted for Examination

IRM 1.2.13.1.20, Policy Statement 4-65, provides that the IRS shall not make any effort, real or implied, to solicit voluntary payments of a deficiency or taxpayer
delinquent account barred by statute. However, payments made by the taxpayer completely of his or her free will be accepted.

Taxpayers must be notified in writing of assessment statute expiration if they were contacted for examination. The appropriate
notification letter depends on whether a deficiency can be determined. See IRM 4.2.1.10.1 and IRM 4.2.1.10.2 for additional guidance. The responsibilities for preparing the notification letter, mailing and routing are the following:

The undated notification letter is prepared and signed by the immediate manager of the party responsible for the statute expiration.
The notification letter, along with the completed Form 3999, Statute Expiration Report, are forwarded to the Area Director (or comparable level of management) via second-level management.

The Area Director (or comparable level of management) signs the Form 3999 and the letter is date-stamped and mailed by his
or her secretary or staff assistant. The date of taxpayer notification is entered in Box 7 of Form 3999.

A copy of the notification letter and the Form 3999 are forwarded back to the manager via second-level management.

The Area Director (or comparable level of management) retains a copy of the Form 3999 and the applicable taxpayer notification
letter. The final Form 3999 and a copy of the taxpayer notification letter are sent forward to the Examination Director (or
comparable level of management).

In multi-year and related examinations, it is not necessary to separately process the year in which the statute expired. The
return can follow the case file through the normal examination process. However, a copy of the final approved Form 3999 must
be in the case file.

4.2.1.10.1
(04-23-2014)Guidelines for Cases with Expired Statutes Where the Deficiency Cannot Be Determined

If the examination has not reached the point where the deficiency can be determined, prepare Letter 5318, Deficiency Case Discontinued Due to Statute Expiration-Deficiency Undetermined. Letter 5318 explains that the examination has been discontinued because the statutory period in which the IRS can legally
issue a refund or assess a deficiency has expired.

4.2.1.10.2
(04-23-2014)Guidelines for Cases with Expired Statutes Where the Deficiency Can Be Determined or there is No Change to Tax

If the deficiency can be determined or the case is a no-change, prepare Letter 5321, Deficiency Case Discontinued Due to Statute Expiration-Deficiency Determined, and an unagreed or no-change examination report.

See IRM 4.10.8.11.1 (2), Reports. The report can be a copy of a report previously furnished to the taxpayer, a revision of that report or an initial report
prepared after statute expiration. However, adjustments that give the taxpayer a beneficial "double deduction"
are prohibited as discussed in Treas. Reg. 1.161-1, e.g., capitalizing an item previously expensed and allowing a depreciation
deduction in subsequent years. IRC 6401(a) provides that the term overpayment includes any payment of any internal revenue
tax which is assessed or collected after the expiration of the period of limitation applicable. It will generally be possible
for the taxpayer to file a timely claim within two years and have any payment refunded. This permits a double deduction if
a report includes issues that involve subsequent returns.

The report should reflect the deficiency or no change to tax resulting from issues that have been developed to a point where
the IRS's position is reasonably sound. Letter 5321 advises the taxpayer "... you have no legal obligation to pay the amount
shown on the enclosed report."

Note:

In order to show the statute has expired and the taxpayer is under no legal obligation to pay the deficiency, include the
following statement in the "Other Information"
section of the report: "You will not be assessed a deficiency for (year) and are under no obligation to pay the deficiency
shown on this examination report."

The purpose of the report is to help the taxpayer in filing subsequent returns and to furnish the amount of the deficiency
if the taxpayer elects to make a voluntary payment.

4.2.1.10.3
(04-23-2014)Guidelines for Cases with Expired Statutes Where the Taxpayer Makes a Voluntary Payment

If the taxpayer inquires about making a voluntary payment, he or she should be informed the payment will be accepted and can
be mailed to the office contacted. The subject of voluntary payments should not be discussed unless the taxpayer inquires
about voluntary payments. If the taxpayer makes a voluntary payment:

Prepare and process Form 3244-A, Payment Posting Voucher-Examination, treating the payment as an advance payment. See IRM 4.4.24.2, Form 3244-A, and IRM 4.4.24.3, Advance Payment on Deficiency.

Prepare Form 3198, Special Handling Notice for Examination Case Processing, following the instructions in IRM 25.6.1.13.2.8.3 (1), Closing Cases Involving Expired Statute Returns, and submit the case for normal processing. Voluntary payments are sent to Excess Collection File.

4.2.1.11
(04-23-2014)Processing Returns and Accounts of the President and Vice President

The individual income tax returns for the President and Vice President are subject to mandatory examinations and cannot be
surveyed. See IRM 3.28.3.2.3, Mandatory Examination.

Copies of the returns to be examined will be transmitted by the Office of the Deputy Commissioner for Services and Enforcement
to the SB/SE, Director, Examination.

The area responsible for the examination will be determined by the SB/SE, Director, Examination or his or her designee. After
a determination is made as to the area having jurisdiction, copies of the returns will be transmitted to the area planning
and special programs (PSP) territory manager for control and assignment to the appropriate field group. The transmittal memorandum
will contain the following instructions:

Regardless of discriminant index function (DIF) score, the returns will be examined.

IRS personnel, including specialists, will be assigned to the examination as appropriate.

The Examination Area Director, or his or her designee, will arrange for contact with the authorized representative of the
President and or Vice President for the examination.

All relevant IRM procedures will apply to these returns.

Upon receipt, the group should ensure Project Code 0207, Treasury Mandates, and Source Code 46, Employee Returns, have been input for the primary and any prior or subsequent year returns.

The returns must be assigned within 10 business days of receipt in the group. The returns require expeditious handling at
all levels to ensure prompt completion of the examinations.

Related returns, including estate and gift tax returns, will be handled in accordance with procedures relating to all taxpayers.

The location of the returns of the President and Vice President will be monitored at all times throughout the examination
process.

The returns should be kept in an orange folder at all times.

The returns should not be exposed to viewing by other employees.

The returns should be locked in a secure drawer or cabinet when the examiner is away from the work area.

The returns should be processed similar to the examination of an employee return per IRM 4.2.6, Examination of Employee Returns, with the exception of the following:

The returns of the President and Vice President are mandatory examinations and cannot be surveyed.

The returns are subject to mandatory review and must be closed directly to the Employee Audit Reviewer in Baltimore Technical
Services. The "Other"
box in the "Forward to Technical Services"
section of Form 3198 must be checked and the examiner should notate "President (or Vice President) Examination; Forward
to Baltimore Technical Services."
The examining area will notify Baltimore Technical Services when the return is being forwarded.

Baltimore Technical Services will provide Centralized Case Processing (CCP) with advance notice when the return is being closed.

Taxpayers who are presidential appointees are permitted to file their individual income tax returns through a trustee of a
blind trust. IRM Exhibit 4.11.55-1, defines a blind trust as a device used to give management of one's investments to an outside
person over whom the beneficiary has no control.

Extreme caution should be exercised not to violate a blind trust. All correspondence, inquiries, etc., should be directed
to the authorized trustee unless the power of attorney indicates otherwise. No information regarding the source or nature
of a blind trust can be disclosed. See IRM 3.28.3.3.1, General Information and Instructions, and Rev. Proc. 2010-11, 2010-1 C.B. 269, for additional information.

Allegations of income tax evasion or allegations concerning the willful failure to file any tax return by a senior Treasury
official where prosecution is recommended, where the fraud penalty under IRC 6663 is asserted, or the fraudulent failure to
file penalty under IRC 6651(f) is asserted when prosecution is not recommended, will be reported to the Commissioner of Internal
Revenue. The Commissioner of Internal Revenue will immediately report the allegations to the Deputy Secretary of Treasury
or to the Secretary of Treasury.

4.2.1.13.1
(04-23-2014)Definitions

The term "Treasury Department"
means the Office of the Secretary and all agencies, bureaus, and other organizational elements within the Department of
the Treasury.

The following individuals are included within the definition of a "senior Treasury official"
for purposes of these procedures:

All individuals within the Treasury Department serving in Executive Levels I through V.

All individuals within the Treasury Department serving in the Senior Executive Service or positions classified above grade
general schedule (GS)-15 (or comparable pay band).

All individuals within the IRS in grade GS-15 (or comparable pay band) serving in positions centralized in the IRS Executive
Resources Board.

All individuals within the Treasury Department (other than IRS) in grade GS-15 (or comparable pay band) which the Deputy Secretary
may designate.

4.2.1.13.2
(04-23-2014)Compliance Examination Procedures

Upon recommending the assertion of the fraud penalty under IRC 6663 or the fraudulent failure to file penalty under IRC 6651(f)
(for a "senior Treasury official"
) where prosecution has not been recommended by the CI function, the territory manager will provide the Area Director (or
comparable level of management) with a memorandum, for forwarding through channels, to the Commissioner of Internal Revenue.
The memorandum will contain the following information:

Taxpayer name, residence address, and social security number.

Taxpayer position, now held, which qualifies him or her as a "senior Treasury official."

All information received concerning misconduct of IRS employees or officials will be reported to TIGTA via the local TIGTA
office or by a report to the TIGTA hotline using one of the following methods:

4.2.1.15
(04-23-2014)Income Tax Bonds Under IRC 332(b) and IRC 905(c)

A bond for the purpose of securing payment of internal revenue taxes is collateral security offered by the taxpayer, his or
her representative or a third party, which satisfies the provisions of IRC 7101 and Treas. Reg. 301.7101–1.

If an IRC 332(b) liquidation is not completed within a single year, the recipient corporation must sign a waiver of the statute
of limitations on assessment and may be required to file a bond.

The recipient corporation must waive the statute of limitations on assessment for each year that falls wholly or partly in
the liquidation period. Form 952, Consent to Fix Period of Limitation on Assessment of Income Taxes, is used to extend the period of assessment of all income taxes of the receiving corporation on the complete liquidation
of a subsidiary under IRC 332. See Treas. Reg. 1.332-4.

Under a three year corporate liquidation plan, the recipient corporation may be required to file a bond in case nonrecognition
treatment is later lost. See Treas. Reg. 1.332-4(a)(3).

Under IRC 905(c), in the case of any credit sought for a foreign tax accrued but not paid, the Area Director or Director of
Field Operations, as a condition precedent to the allowance of a credit, may require a bond from the taxpayer.

A bond under IRC 905(c) is filed using Form 1117, Income Tax Surety Bond. Form 1117 will be executed by the taxpayer or his or her representative and approved by the Area Director (or comparable
level of management) on behalf of the Commissioner of Internal Revenue.

No period of limitations is established under either IRC 905(c) or IRC 6501(a) for the furnishing of a bond requested pursuant
to IRC 905(c) for a foreign tax credit based on an accrual of a foreign tax. Such bond may be required from a taxpayer at
any time and the foreign tax credit may be disallowed without regard to any period of limitations if a taxpayer refuses to
furnish the bond. See Rev. Rul. 73-573.

If IRC 332(b) or IRC 905(c) issues are present, examiners should contact their Area Counsel for help in determining whether
to secure a bond and what the terms should be. Any bonds secured will be held by Collection Advisory. See IRM 5.6.1, Collateral Agreements and Security Type Collateral, and IRM 5.6.2, Maintenance, for additional information.

4.2.1.17
(04-23-2014)Property Blocked by Foreign Funds Control or Vested by Office of Foreign Assets Control

The Office of Foreign Assets Control (OFAC) of the Department of Treasury administers and enforces economic and trade sanctions
based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international
narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other
threats to the national security, foreign policy, or economy of the United States. OFAC acts under Presidential national emergency
powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets
under U.S. jurisdiction.

On September 24, 2001, the President of the United States issued an executive order that immediately froze U.S. financial
assets of and prohibited U.S. transactions with 27 different entities. These entities include terrorist organizations, individual
terrorist leaders, a corporation that serves as a front for terrorism, and several nonprofit organizations.

Treasury Directive (TD) 15-43 (May 3, 2007, reaffirmed September 8, 2011) delegates to the Commissioner of Internal Revenue
the authority of the OFAC to investigate and review for compliance with economic sanctions programs persons that the IRS has
the authority to examine for compliance with the Bank Secrecy Act provisions in Title 31 (31 U.S.C. 5311 et seq.). The authority
to investigate and review includes, but is not limited to, the authority to compel the production of documents and information
and otherwise to examine a person’s compliance with OFAC-administered economic sanctions. IRM 1.2.43.41, Delegation Order 4-47, addresses the Commissioner of Internal Revenue’s authorization under TD 15-43 with respect to conducting reviews for compliance
with economic sanctions programs.

Information regarding blocked property of aliens and foreign corporations may be obtained from records located in OFAC. When
such information is requested by area offices, a request detailing the desired information will be forwarded to the SB/SE
Area Director.

Requests should contain clear instructions on what is requested and why. OFAC collects the information for bank regulatory
purposes and needs to know who will be the end user of the information and how the information will be used; e.g., by a revenue
agent to conduct an examination. Make the request in a letter sent to the address listed on the contacts page of the Office of Foreign Assets Control website and include the subject line "Records Request from Federal Agency"
.

Information obtained from the records of OFAC with respect to blocked accounts will be considered to be of a confidential
nature and the source thereof will not be disclosed to taxpayers or their representatives, nor will such information be used
in any legal proceeding without written authorization from headquarters.

OFAC will pay all taxes legally assessed against a former owner whose property has been vested by that office if the tax is
attributable to taxable income accruing prior to the date of vesting. This is conditional upon a proper determination of the
taxes, where there is no non-vested property from which the taxes may be realized, and there are vested funds available for
payment of the taxes.

4.2.1.17.2
(04-23-2014)Investigation and Disposition

Investigation of returns will be made under the general procedure prescribed for investigation of income tax returns. If the
owner has property vested by OFAC, any deficiency in tax liability arising from income realized prior to vesting or from income
earned on non-vested property will be asserted under the general prescribed procedures. Preliminary (30-day) letters or statutory
notices of deficiency in cases where communication cannot be had with the owner or his or her representative, should be addressed
in care of the party or agency having custody of the property. Under war conditions, such address may be treated as the taxpayer's
last known address.

If all the property of the owner has been vested, the preliminary (30-day) letter, as well as the statutory notice of deficiency,
should be addressed to the owner, in care of Justice Dept., Civil Division, Office of Foreign Assets Control. Visit the Office of Foreign Assets Control website for additional information on the OFAC.

If the owner of the property or the party having custody of the property (in situations in which the property has not been
vested by OFAC) does not agree to any proposed deficiencies, the parties will have the right to a protest. Any reasonable
request for an extension to the 30-day letter should be given favorable consideration, provided the interests of the government
are adequately protected.

If Appeals consideration is not requested, the case file will be forwarded to the LB&I, International, PSP program manager.
The file will include the audit report and a statement of reasons why an agreement was not reached. In cases where agreements
were concluded in vested cases, the file will be noted to assess in the name of the OFAC, for the former owner. Likewise,
agreed assessments in non-vested cases will be made in the name of the owner in care of the person, party, or agency having
custody of the property.

4.2.1.17.3
(04-23-2014)Payor Failure to Withhold Tax at Source

In cases of blocked or vested property, where it is determined the payor failed to withhold tax at the source on income, the
amount required by statute to be withheld will be asserted against the payor agent. In cases where it is determined that income
arising, but not paid, prior to blocking or vesting was turned over to OFAC without withholding, the liability of the payor
agent for withholding will be promptly reported to the LB&I, International, PSP program manager for adjustment.

4.2.1.18
(04-23-2014)Witness Security Program

Federal agencies have always recognized a duty to protect informants and witnesses from threats or possible danger resulting
from their assistance to the government by furnishing information or by testifying on behalf of the government in the prosecution
of individuals. See IRM 9.5.11.11, Protection and Maintenance of Informants and Witnesses.

The IRS has the authority to temporarily protect an informant or witness until a determination is made by the DOJ that the
person qualifies for protection under its Witness Security Program.

The IRS has the authority to approve all confidential expenditures for other protective arrangements undertaken by the IRS
for an informant or witness who does not qualify for or is refused protection under the DOJ's Witness Security Program, in
an investigation which is not under jurisdiction of the U.S. Attorney's Office.

Examination personnel who become aware of or have indications that the taxpayer assigned may be a person in the Witness Security
Program will immediately suspend the examination. No subsequent attempts by examination employees will be made to contact
a protected witness. Any necessary contact will be coordinated through the special agent in charge (SAC) to the Deputy Chief,
CI, Attn: Witness Security Coordinator (WSC). A memorandum will be prepared for signature of the area director (or comparable
level of management) containing the following:

Any examination action taken to date.

Facts indicating that the taxpayer is enrolled in the Witness Security Program.

Upon receipt by an IRS employee of information alleging a threat or possible danger to a past or present government informant
or witness or his or her family, as a result of his or her furnishing information or otherwise cooperating with the government,
the employee will forward the information immediately to the SAC.

4.2.1.19
(04-23-2014)Taxpayer Advocate Program

The Taxpayer Advocate Service (TAS) helps taxpayers resolve problems with the IRS and recommends changes to prevent problems
through two types of advocacy—case-related and systemic. See IRM 13.1.1.2(5), Philosophy of Advocacy. TAS has identified criteria that qualify taxpayers for TAS assistance. TAS Criteria 1-9 reflect situations requiring acceptance
of taxpayer cases to be worked by TAS.

All inquiries meeting TAS criteria should be documented on Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), and forwarded to TAS by the most expeditious method available.

Note:

If the taxpayer specifically requests TAS assistance, the case should be referred to the Local Taxpayer Advocate (LTA)

.

Problems that meet TAS criteria do not necessarily need to be sent to TAS if they can be immediately resolved by the function.
All IRS employees should handle potential TAS cases with the taxpayer's best interest in mind.

If TAS accepts a Form 911 that is related to a taxpayer under examination, it will be forwarded to Examination for review
by the responsible group. The group manager will refer to the Service Level Agreement between the National Taxpayer Advocate
and the Commissioner of his or her respective division for procedural guidance.

Examiners should charge time expended on TAS activities to miscellaneous examination Activity Code 671, Taxpayer Advocate, per IRM 4.9, Examination Technical Time Reporting System. Time charged to this code should only include actual time spent on TAS activities. Examination time should be charged to
the case in the usual manner.

The statute of limitations on assessment may be extended by IRC 7811(d) and should be confirmed in writing with TAS.

Section 3706, Use of Pseudonyms by Internal Revenue Service Employees, superseded by IRM 10.5.7, Use of Pseudonyms by IRS Employees.

The Act did not change the Service's long-standing commitment to the fair and equitable treatment of all taxpayers set forth
in Rev. Proc. 64-22, 1964-1 C.B. 689. The pertinent part of Rev. Proc. 64-22 states the law will be administered in a reasonable,
practical manner. Issues should be raised by examiners when they have merit and never arbitrarily or for trading purposes.